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The U.S. Economy and its Affect on the Life Sciences Industry

2023 U.S. Life Sciences Outlook

  • After record years in 2020 and 2021, growth of the U.S. life sciences industry has returned to a more normal pace in 2023, although demand for lab/R&D space remains well above pre-pandemic levels.

  • Life sciences employment reached a record high at the start of 2023, although the rate of growth slowed. The San Francisco Bay Area, Boston/Cambridge and Seattle were the fastest-growing markets last year.

  • Recent turmoil in the banking system may cause further reductions in venture capital funding to the industry this year. Nevertheless, Q1 2023 VC funding is on pace to exceed pre-pandemic levels by roughly 20%. Robust industry R&D expenditures and public funding from the National Institutes of Health are still supporting growth.

  • CBRE forecasts that total life sciences lab/R&D space may increase by more than 20% over the next two years, as a record-high amount of new construction is currently underway. This likely will push the vacancy rate up moderately.

  • Lab/R&D vacancies are rising but remain well below their long-term average. Rents are still rising in most of the nation’s markets, albeit at a slower pace than in the past several years.

  • Life sciences investment sales volume is down to pre-pandemic levels, but pricing remains high with cap rates at record lows amid robust investor sentiment.

  • Industry growth this year depends on whether an economic recession occurs, as well as the stability of financial markets, but history shows the life sciences industry is more immune to these challenges than other sectors.


Life sciences employment is at a record high, but its growth is slowing. Previous cycles suggest any further slowdown in employment won’t be as severe as that of the broader economy.

Life Sciences Employment Reaches Record Levels but Growth Slows

U.S. life sciences employment hit a record 2.1 million jobs at the start of 2023.

Although the pace of job growth slowed to 4.1% in January 2023 from 6.3% in

January 2022, it was still higher than any annual growth rate before 2019. Should a

recession take hold, we expect even slower job growth in 2023. Life sciences’ share of the total U.S. labor force reached a near-record 1.4% last year. Research & development employment—most notably in the biotechnology sector—grew by 8.7% and led the overall industry’s annual job growth.

Since June 2022, industry employment growth has decelerated due to higher interest rates and a pullback in public and private funding for the industry. The life sciences industry added an average of 11,144 jobs per month between June 2020 and June 2022, up from 6,259 in the comparable two-year period prior to the COVID pandemic (2018-2019). In the past six months ending January 2023, however, the monthly average fell to 3,378.

Life sciences companies have announced many more layoffs in the first two months of 2023 than in 2022. Nevertheless, the unemployment rate for essential scientific occupations in life sciences research & development remain well below the total U.S. unemployment rate, suggesting underlying strength in hiring despite the layoff announcements. Despite the possibility of a moderate U.S. recession this year, the life sciences industry has historically been resilient to economic downturns. In each of the past three recessions, job losses in the life sciences industry were much more limited and of a shorter duration than overall U.S. job losses. We expect this same trend if a recession takes hold this year.

The latest life sciences local employment data through June 2022 shows which U.S. markets

had the most strength and momentum entering a slower growth phase since then. In terms of total number of persons employed in the life sciences industry, the San Francisco Bay Area was the leading metro for life sciences employment, followed by Boston/Cambridge,

New Jersey, San Diego, Washington, D.C./Baltimore and New York City.


Industry Funding Trends are Mixed

Although there has been a notable pullback in life sciences venture capital

investment and initial public stock offerings so far in 2023, high levels of company

R&D expenditures and public funding from the National Institutes of Health will

persist. Life sciences companies also have roughly $200 billion in cash and

equivalents on their combined balance sheets allocated for business development

and mergers & acquisitions.

Life sciences company R&D expenditures have grown by an estimated 40% over the

past five years. The nearly $154 billion in company R&D expenditures last year far

exceeded the $21.7 billion in life sciences venture capital investment.

Venture capital plays a pivotal role in the creation and expansion of life sciences

companies. Despite a 34% year-over-year decline in annual VC funding last year to $21.7 billion, Q4 2022 recorded the first material quarterly increase in venture capital funding since early 2021 at 20%.

While evidence of abundant available capital among investors provides an element of optimism for more favorable funding in 2023, recent turmoil in the banking system may restrict greater amounts of funding for emerging life sciences company expansions.

The bulk of life sciences venture capital is allocated to companies in the top three premier life sciences markets of Boston/Cambridge, the San Francisco Bay Area and San Diego. Some commercial real estate investors have indicated that they will limit their focus to these three markets in the near-term due to current economic volatility. Nevertheless, funding for these three markets fell by 33.5% year-over-year

in 2022, compared with a 31% decline for the rest of the top 10 markets tracked by CBRE


Figure 9 shows how the growth or decline of life sciences venture capital investments

closely mirrors the rise or fall of industry employment. Based on the year-over-year

change in annual venture capital investment, a slowdown in life sciences hiring should

occur this year. However, Q4 2022 saw the first material quarter-over-quarter increase

in venture capital funding since early 2021, suggesting a stabilization in hiring trends

rather than a decline.

There also has been a drop in initial public offerings (IPOs) of emerging companies. The

combined value of life sciences company IPOs last year fell by 79% from 2021 but was only 27% below the pre-pandemic annual average between 2015 and 2019, suggesting that 2020- 2021 was an aberration.

The National Institutes of Health (NIH) is partly offsetting the recent drop in private funding with a budget of $47.5 billion for fiscal year 2023, up from $45.2 billion in 2022. Annual NIH funding has increased by 62% over the past 10 years. The top life sciences lab/R&D markets in the U.S. continue to receive the most NIH funding, led by the Greater New York metropolitan area. Seattle and Raleigh-Durham have been the fastest-growing markets for NIH funding since 2019. Johns Hopkins University in the Washington, D.C./Baltimore market remained the largest single recipient of NIH funding in 2022 with $839.9 million.

A flurry of mergers & acquisitions, as well as other business development deals, is expected this year as valuations for smaller companies fall and a patent cliff looms over the next several years. The amount of cash and equivalents on life-sciences company balance sheets has swelled since 2017 , providing the funds for more transaction activity in 2023

Industry Innovation

Innovation & New Products Driving Industry Expansion

Clinical studies are a vital part of the life sciences company life cycle. Phase 2 and 3

trials in particular are a tipping point for companies as they determine the

effectiveness of the drug/product being developed. Results from these studies help

determine if a company will expand or contract, especially with startups.

As seen in Figure 15, new Phase 2 and 3 clinical trials increased by 618% from 2012 to

2021. While the addition of new trials slowed in 2022, the industry is currently

undertaking an all-time high number of clinical trials with over 31,000 active studies

in the U.S. and nearly 11,500 in Phases 2 and 3 as of the end of February 2023.

The Food & Drug Administration (FDA) approved 37 novel drugs in 2022, down from 50 in 2021 and the previous 10-year average of 43. As of the end of February 2023, seven new drugs have been approved, on par with last year’s approval rate at this time. Despite increasingly onerous regulations for drug approvals, the majority of the new drugs approved last year used one of the four expedited processes for FDA approval. While approvals are down, new drug applications are up.

Laboratory/R&D Trends

U.S. life sciences laboratory/R&D inventory has grown by 47% over the past five years to 181.7 million sq. ft. with a record 40.2 million sq. ft. of new construction currently underway.

U.S. life sciences laboratory/R&D inventory has grown by 47% over the past five years to 181.7 million sq. ft. With a record 40.2 million sq. ft. of new construction currently underway, the total inventory should grow another 22% to more 220 million sq. ft. in the next two years.

Boston/Cambridge has the most lab/R&D space currently under construction with 15.3 million sq. ft., followed by the San Francisco Bay Area with 9.3 million and San Diego with 5.4 million—each accounting for more than 20% of their existing inventories. Although there is a record 12.5 million sq. ft. of conversion projects currently under construction, their share of the total construction pipeline fell to 31% in Q4 2022 from a high of 43% in Q1 2021.

New construction in core submarkets has fallen to an average of 40% in 2022 from 90% in 2018 and 2019. New construction has shifted away from primarily core submarkets to peripheral ones. Figure 22 shows the geographic dispersion of new construction over the past several years in the nation’s premier life sciences markets of Boston-Cambridge, San Francisco Bay Area and San Diego, where the share of all new construction in their core submarkets has fallen to an average of 40% in 2022 from 90% in 2018 and 2019. With lower demand and a record amount of new construction underway, lab/R&D vacancy rates

have started to increase in most markets. While vacancy rates in the nation’s 13 leading life

sciences markets remain below their long-term averages, the margin between them is tightening.

Average asking rents for lab/R&D space increased in the second half of last year. In some markets, more generous tenant improvement allowances supported higher rents. However, average rents in some of the most sought-after submarkets either stabilized or declined. For example, average rents in San Diego’s Torrey Pines and Boston’s Cambridge submarkets fell by 2% and 3%, respectively, last year.

Biomanufacturing/GMP Trends

Persistent Demand for New Biomanufacturing/GMP Space

Leasing activity for Biomanufacturing/Good Manufacturing Process (GMP) facilities slowed in 2022 as tenants postponed real estate decisions amid economic uncertainty. Some life sciences companies deferred plans to lease or build their own GMP space due to capital constraints and instead opted to engage third-party drug manufacturers. While demand for space remains significant, there has been a moderate increase in vacancy in most markets as construction ramped up. The bulk of large-capacity Biomanufacturing/GMP facilities (owneroccupied and leased) are in California and the Northeast Corridor.

Investment Trends

Lab/R&D Investment Volume

Declines but Pricing Remains Tight

Lab/R&D real estate investment sales fell back to relatively healthy historical levels in 2022. Total volume fell by 43% year-over-year to $14.4 billion. The biggest declines were in the San Francisco Bay Area (-62%) and Boston/Cambridge (-42%). Lesser declines occurred in San Diego (-17%) and the rest of the country (-27%).

While costlier debt markets affected life sciences asset pricing in 2022, the four-quarter moving average of lab/R&D cap rates stabilized in Q4 2022, mirroring a similar pattern in

other sought-after property types such as industrial and multifamily. The spread between the average lab/R&D cap rate and that of all other office property types moved to a steep premium of nearly 83 basis points in Q4 2022 from a discount of more than 60 basis points in 2014.

Emerging Markets

Three Rising Life Sciences Centers

Life sciences companies are entering new markets nationwide to accommodate future growth. Three of these emerging life sciences hubs particularly stand out in terms

of their size, institutions, talent and rapid growth.


Atlanta boasts one of the nation's fastest-growing life sciences labor pools, producing some 2,000 college graduates (2020 data) per year in biological and biomedical sciences.

Atlanta secured $708 million in NIH funding last year. Emory University received nearly $560 million of that total, followed by Georgia Tech with $50.4 million and Georgia State with

$44.9 million.This institutional funding, coupled with growing venture capital activity, has produced some of the fastest life sciences industry employment growth of any U.S. metro

area. Atlanta ranks 10th overall for total life sciences job growth at 20% from 2019 to mid-2022. In the R&D sector, Atlanta ranked fourth nationally with a 44% job growth rate

over the same period.

Dallas/Fort Worth

Dallas/Fort Worth’s total life sciences labor pool has grown by 17% since 2019 (Figure 30) to more than 26,000 workers, surpassing the national average growth of 13.7%. In the R&D

sector, Dallas/Fort Worth ranked third nationally with a 44.5% growth rate over the same period. Supporting Dallas/Fort Worth’s growing life sciences ecosystem are the University of Texas Southwestern Medical Center in Dallas and the University of North Texas Health Sciences Center in Fort Worth, which combined received $406 million in NIH funding and helped produce the nation’s 10th greatest number of biological and biomedical

sciences graduates in 2022. The market attracted $1.6 billion of life sciences venture

capital funding between 2018 and 2022—the eighth largest amount of any U.S. market.


Nashville’s life sciences labor pool has grown by 19% since 2019 to nearly 7,700 workers. In the R&D sector, Nashville ranked second nationally with an 81% growth rate over the

same period. The market secured $521 million in NIH funding last year, one of the nation’s highest per-capita amounts. Almost all this funding was allocated to Vanderbilt University and its medical center, putting it among the top 20 largest single recipients of NIH funding in the nation and more than many other larger metros, such as Dallas/Fort Worth, Minneapolis/St. Paul, Denver/Boulder and Miami/Fort Lauderdale.

Government Incentives

Government Incentives Fueling Growth

According to CBRE’s Location Incentives Group, as life sciences companies increase spending on R&D facilities, many are seeking ways to offset ongoing operating expenses and one-time capital investments. Economic-incentive programs are one avenue companies can pursue to alleviate these costs, especially during a period of rising inflation and borrowing costs.

Despite economic turbulence, the life sciences sector is poised for expansion across the country. Recent economic growth is partially attributable to the 2022 federal CHIPS and Science Act, which includes $200 billion in funding for science, technology, engineering and R&D development.

At a state and local level, many jurisdictions are attracting life sciences companies by offering several types of incentives to improve economic vitality and create high-paying jobs.

These incentive programs include state income tax offsets, discretionary grants, property tax abatements, utility cost offsets, fast-track permitting, low-cost loans, sales tax refunds, infrastructure grants, training grants and free/discounted land.

Life sciences incentive programs have been particularly strong in three states over the past

five years (Indiana, New York and North Carolina), which combined totaled $1.1 billion or almost 45% of total U.S. life sciences incentive programs. Since 2018, there have been 1,113 public life sciences incentive deals in the U.S. totaling nearly $2.5 billion for an average of $19,146 per new job or 6% of a recipient company’s total capital investment. Companies are leveraging these incentive savings to underwrite costs for real estate portfolio growth.


History suggests that the life sciences industry is better positioned than many others to

weather an economic recession this year.

Previous cycles show that any slowdown in life sciences employment likely won’t be as

severe as that of the broader economy. An uptick in venture funding in Q4 2022 was a

hopeful sign for employment stabilization later this year since employment changes generally

mirror funding changes after a two quarter lag. However, recent turmoil in the banking sector

could cause reductions in funding this year.

The capital markets outlook is mixed. While venture capital funding and initial public stock

offerings for life sciences companies decreased in 2022 and challenges remain, record

levels of NIH funding and R&D expenditures by the industry will fuel continued growth.

With ample cash and equivalents on the balance sheets of U.S. life sciences companies, another strong year of M&A activity and other business development transactions is expected in 2023.

After a surge in life sciences lab/R&D investment sales in 2021, cap rates for these assets are beginning to stabilize and should remain favorable compared with other property types.

While lab/R&D vacancy rates in the top U.S. life sciences markets have begun to rise, above-

average and steady demand will underpin the sector’s resilience in the year ahead.

Pharma execs see inflation as the No. 1 challenge in 2023: survey

Heading into 2023, inflation is the top concern for the pharmaceutical industry, according to a poll of executives conducted by GlobalData Healthcare.

The survey, which was taken between Oct. 26 and Nov. 23, showed that executives placed inflation first, drug pricing and reimbursement constraints second, the Ukraine conflict third, and the political divide in the United States fourth among the top challenges hampering growth in the industry.

The idea that the pharma industry is recession-proof because of the growing demand for medicines—especially as the population ages—is being put to the test. Rising operational costs were a growing concern for industry leaders throughout 2022.

In March of last year, for example, Viatris cut its earnings projection to a range of $5.8 billion to $6.2 billion just a few months after saying $6.2 billion would be the floor.

“What really has triggered the incremental additional inflation that we saw,” Viatris CEO Michael Goettler said at the Raymond James investor conference in March 2022.

Around the same time last year, executives from Johnson & Johnson, GSK and Bayer, voiced similar concerns. Later in the year, Merck KGaA and others warned about risks from inflation.

Many months later, the same pressures remain. On Thursday, shares on the pan-European STOXX 600 slipped .2% “ahead of euro zone inflation data,” Reuters reported. Credit for a large portion of the drop went to healthcare stocks, such as Novartis and Sanofi, which were down more than 1% each, Reuters noted.

In GlobalData’s survey of industry executives, other top concerns hindering growth heading into 2023 are China, Brexit, the vertical integration of healthcare systems and patent expirations.

The firm noted that the industry will need to navigate "financial and strategic risks." Pharma companies "will need to find new ways to offset regulatory and inflationary pressures," the GlobalData team said.


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